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Brexit beats Bremain: markets in turmoil

UK voters have chosen by a narrow margin to leave the European Union. The outcome of the UK vote is initially a major shock for markets, and could in the long run damage economic growth and cause more political risks. Brexit puts further pressure on risky assets, oil prices and the British pound. Outcome could trigger further quantitative easing.

"Brexit" it is. The news that a majority of British voters want to leave the EU has sent a shock wave through financial markets. Investors must now digest the uncertainty created by the referendum and markets will surely face many unclear repercussions.

"What we do know is that this is a political crisis, which will not automatically trigger a worldwide recession or a liquidity crisis in the financial system", said Valentijn van Nieuwenhuijzen, Head of Multi Asset at NN Investment Partners.

Britons voted 51.9 percent to 48.1 percent to leave the EU, voicing their desire to take greater control of the country’s economy and its borders. More than 72 percent of eligible voters turned out to take part in the referendum. Shortly after the news, Prime Minister David Cameron announced he would resign, creating another dimension of uncertainty in British politics.

Financial authorities around the world have said a Brexit will reverberate through an already fragile global economy. The long-run economic and political consequences could be significant and will probably have a negative impact on economic growth. Van Nieuwenhuijzen estimates the negative impact on this year’s GDP growth at 1% for the UK and 0.3-0.5% for the Eurozone.

Britain’s decision will certainly have great political repercussions for the EU and for the UK itself. A drive for independence in Scotland, and maybe even Northern Ireland, may be likely in the near term and cause further political unrest.

"There is huge uncertainty, especially for the UK, politically and economically," says Van Nieuwenhuijzen. "Recession there seems likely, but policy action will be key in determining how deep it will be."

Valentijn van Nieuwenhuijzen , June 2016

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